The Executive Board of the International Monetary Fund (IMF) reviewed a noncomplying disbursement to Malawi in October 1999 at the conclusion of the 1995-99 Enhanced Structural Adjustment Facility (ESAF) arrangement, along with corrective action taken by the Malawian authorities. As a result of that review, the Executive Board granted a waiver that brought the October 1999 disbursement of SDR 7.635 million (about US$10 million) into compliance with IMF rules.

“Executive Directors expressed concern over a noncomplying disbursement made to Malawi. A final disbursement of SDR 7.635 million under Malawi’s 1995-99 ESAF arrangement was made in October 1999. Subsequently, it became apparent that payments arrears had been accumulated in respect of domestic public spending during 1998/99, in contravention of a quantitative performance criterion under the arrangement. As a waiver for the nonobservance of this performance criterion had not been requested or granted because the authorities were unaware of the accumulation of arrears, the October 1999 disbursement was, in light of information that became available subsequently, a noncomplying disbursement.

“Directors noted the authorities’ indication that their inability to detect the accumulation of these payment arrears had resulted from deficiencies in the system for controlling and monitoring expenditure that had not previously been identified. They recognized that the thrust of the program had not been compromised. Nevertheless, Directors emphasized the importance of effective remedial action to address the lapses in Malawi’s public expenditure control and the inadequacies of its reporting system. In this connection, they noted that the authorities had now taken corrective action by introducing a monitoring system for both expenditure commitments and cash disbursements. Directors believed that this would facilitate the implementation of the budget and avoid new arrears. They also supported the provision of technical assistance to address the problems posed by the shortages in administrative capacity with which the authorities are faced.

“In light of the corrective actions taken by the authorities, the Executive Board of the IMF granted a waiver of the non-observance of the performance criterion prohibiting the accumulation of payment arrears.”